ECB Will Act If Market Downturn Threatens Outlook – Draghi

The European Central Bank (ECB) in Brussels on Monday said it will take measures to ensure its monetary policy reaches the real economy if appears threatened by global financial downturn.

“In the light of the recent financial turmoil, we will analyze the state of transmission of our monetary impulses by the financial system and in particular by banks,” Mario Draghi told European Parliament lawmakers on Monday. He further stated that the organization will examine the impact of renewed declines in energy prices and “if either of these two factors entail downward risks to price stability, we will not hesitate to act.”

Discussing global economy, Draghi said that “a continuation of the rebalancing process is needed to secure sustainable growth over the medium term.” He also said this “could imply some headwinds in the short term, which will require close monitoring of the related risks.”

The Euro fell 1.1 percent to trade at $1.1135 against the US dollar, and bank stocks initially declined before recovering, the Euro Stoxx Banks Index gained 3.6 percent during the European Parliament’s Economic and Monetary Affairs Committee meeting.

“The fall in bank equity prices was amplified by perceptions that banks may have to do more to adjust their business models to the lower growth/lower interest-rate environment and to the strengthened international regulatory framework that has been put in place since the crisis,” he said. “However, we have to acknowledge that the regulatory overhaul since the start of the crisis has laid the foundations for durably increasing the resilience not only of individual institutions but also of the financial system as a whole.”

Even though investors are wary of bad loans still present at Italian lenders and political uncertainty over plans to reduce them, Draghi said euro-area banks are in a “good position” to bring down non-performing loans in an orderly manner over the next few years, and added that they won’t face additional legal capital requirements.